Bulk Asset Sales to Support Earnings

3Q23 results summary. BBTN booked a net profit of IDR 839bn in 3Q23 (+24.7% QoQ, +4.4% YoY), bringing its cumulative 9M23 net profit to IDR 2.3tn (+1.7% YoY), in line with our estimates (74.9% of our full-year forecast) but below consensus (71.5%). The bank managed to post QoQ NII growth in 3Q23, supported by better NIM and strong loan growth in Sep-23. BBTN’s loan growth reached 9.9% YoY in 9M23, still driven by subsidized mortgages (+11.9% YoY) due to price adjustment on subsidized houses at the end of Jun-23. Regarding asset quality, BBTN's NPL ratio improved QoQ to 3.53% in 3Q23 vs. 3.66% in the previous quarter, supported by improvements in the commercial segment. Consequently, BBTN's NPL coverage ratio increased to 142% in 3Q23 from 139% in the previous quarter, while its LAR coverage ratio remained relatively stable at 22%.

Updates on ‘bulk asset sales’. BBTN will implement ‘bulk asset sales’ strategy to reduce its NPL ratio; it plans to sell IDR 900bn worth of NPLs from high-rise commercial loans, and the sale is expected to be completed by the end of 2023. We will see an immediate impact on BBTN’s NPL (-25bps) and NPL coverage ratio in 4Q23. The bank is planning another round of bulk asset sales (up to IDR 1tn) in 2024, and projects its NPL coverage ratio to exceed 160% within the next 2-3 years.

2024F preliminary guidance. BBTN still aims to book 10-11% loan growth this year, supported by subsidized mortgages, as the gov’t has allocated IDR 25.8tn (+12.2% YoY) to provide mortgage interest subsidy for low-income households in 2023F. For next year, BBTN hinted that it could achieve 11% loan growth supported by the non-subsidized mortgages as the new stimulus from the gov’t (which will cover 100% of the VAT on the purchase of houses priced up to IDR5bn until Jun-24, and 50% until the end of 2024) should help boost non-subsidized mortgage loan growth to more than 12%. NIM is expected to reach 4-4.2% in 2024F, while CoC will remain at its current level of 1.2%-1.3% as the bank plans to write off some of its commercial loans in 2024, and CoC is projected to drop in 2025.

Maintain our HOLD rating with a TP of IDR 1,300/share. Given the backlog of home ownership in Indonesia as well as the property tax reduction stimulus (budget: IDR3.2tn), BBTN still has massive growth potential in both subsidized and non-subsidized mortgage loans. However, in a high-rate environment, BBTN is vulnerable to the risk of having a higher CoF than its peers due to its high LDR ratio. We maintain our HOLD rating with a 12-month TP of IDR 1,300 per share, implying a PBV multiple of 0.4x for 2024F. Downside risks include a weaker-than-anticipated economic recovery, lower-than-anticipated NIM and loan growth, and higher credit costs.